Foundations Make Little Progress on Diversity

“With data out there, we can have an adult conversation about why there’s so much underutilization of talented women and people of color,” said Robert Raben, executive director and founder of the Diverse Asset Managers Initiative.

Illustration by II

Illustration by II

Foundations are headed in the right direction when it comes to diversity, but the numbers are only creeping up, according to a study sponsored by the Knight Foundation and conducted by the Global Economics Group.

The study analyzed $66.73 billion in assets from 30 foundations (five of which were first-time participants in the study), and found that 16.6 percent of that total is invested in diverse-owned firms, up from 13.5 percent last year. Four of the foundations have more than 30 percent of their assets invested with diverse-owned firms, twenty-three have 0 to 30 percent invested in such firms, and three have no investment at all.

The study found that 25 foundations that participated in both the 2020 and 2021 studies have increased their investment with diverse-owned firms, which are defined by Knight as firms with women or minority ownership of more than 50 percent. Of the $11.07 billion total invested in diverse-owned firms, $6.24 billion is invested in companies owned by women, while $6.7 billion is invested in minority-owned firms, which accounts for 9.3 percent and 10 percent, respectively, of the analyzed assets from the 30 foundations.

Foundations are talking a lot about increasing the diversity of the managers in which they invest, even if there’s a long way to go.

“I’m hearing from a lot of different asset allocators that [diversity] is an area of interest, [that] it’s a place where they want to invest more money,” said Juan Martinez, vice president and CFO of the Knight Foundation.

The Knight study said that it observed “improved transparency in foundation investments” and “higher foundation participation” compared to last year.


But it added that there’s still “room for improvement,” as 14 foundations declined to participate in the study. And Kate Ahern, managing director and head of ESG for Cartica Management, said that although asset managers are working hard to improve their pipelines to bring more women into the industry, asset allocators are “not yet making allocation decisions on a large scale based on diversity.”

From May to August, Knight invited the top 55 foundations with $300.24 billion in total assets to participate in the study. Participating foundations ranged in size from the $48.85 billion Bill & Melinda Gates Foundation to the $2.12 billion Casey Family Programs. Knight and Global ended up analyzing data from 30 foundations with $166.24 billion in total assets under management, although of that total, only $66.73 billion was used for the study, since many of the foundations either use in-house investment teams to manage their portfolios (the study only considered assets invested by external managers) or chose not to participate. Knight and the Global Economics Group obtained the data via public sources like IRS 990/IRS 990-PF, or by asking the foundations to disclose their investment details.

Some of the foundations, such as the Bill & Melinda Gates Foundation Trust, were concerned that because the study’s parameters allowed only a fraction of their assets to be analyzed, the results were misleading. “The study looks at just a sliver of our portfolio,” BMGFT wrote in the appendix.

BMGFT was among the three foundations that reported that none of its assets were invested with diverse-owned firms. Cascade Investment, the firm that manages most of BMGFT’s assets, said that women actually make up almost half of BMGFT’s employee population. “The Knight study is deeply flawed for an asset manager like BMGFT, which manages its assets directly with a gender and ethnically diverse internal team,” Cascade said in a statement. “We also have billions of dollars invested with external managers or investment firms who are women or minority-owned or led. These firms and managers represent a meaningful share of our assets.”

Robert Raben, executive director and founder of the Diverse Asset Managers Initiative, said that foundations should disclose more diversity data “under their own conditions,” and that the Knight study itself is “game-changing” because it gives people a preliminary look at diversity issues in the industry. “The top line is, with data out there, we can have an adult conversation about why there’s so much underutilization of talented women and people of color,” Raben said.

The Knight Foundation’s Martinez added that diversity is an issue that both asset allocators and managers should take into consideration. “That’s both the function of asset allocators allocating more [to diverse-owned firms], but also of the investment management industry doing more to be transparent about their diversity statistics, as well as building the pipeline of investment professionals,” he concluded.